CREDIT CARD HELP: The basic fundamentals of credit cards

Know your rights: Fair Debt Collection Practices Act

By Connie Prater

Many consumers have never encountered a debt collector. Some may be fearful or reluctant to take a debt collector's call or read letters about credit card debts they owe. Experts say consumers should face the facts and deal with debt collectors, but also know and understand their rights and protections.

Can a debt collector call you repeatedly at work if your boss doesn't allow it? Falsely threaten to sue you or take your house if you don't pay up on old credit card bills? The answer to both questions: not legally.

"Knowledge is power. An educated consumer is a better consumer," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, a nationwide group of nonprofit credit counseling agencies. The first place to look for answers on what is and isn't allowed when debt collectors come calling is the Fair Debt Collection Practices Act. The federal law, enacted in 1977 to curb abuses by third-party debt collection agencies, carries protections against harassment, threats, unwanted calls to the workplace and disclosing the existence of debts to friends and neighbors. (See Tips for dealing with debt collection)

"The laws are in place for a reason," says Cunningham. "They are to protect consumers from abusive practices."

Debt collectors are companies hired on a commission basis by credit card issuers and banks to collect on past-due accounts. Debt collectors may also purchase bad credit card and other loan debt outright from financial institutions and other lenders. These debt buyers own the debt and the right to collect the full amount of the outstanding credit card debt.

The basic provisions of the law include:

• The right of consumers to sue debt collectors individually or in class actions for violations of the law. • Protection against harassment, including excessive phone calls, abusive language and threats of violence, harm or arrest. • Prohibiting disclosure of the existence of debts to others who are not authorized to know about the debts. • Banning contact with consumers at inconvenient times, such as before 8 a.m. and after 9 p.m. • Allowing consumers to seek proof that they, in fact, actually owe the money the debt collector wants.

First contactsWhen first contacting consumers, debt collectors must inform debtors of their rights to dispute the debt. This is referred to as the "mini-Miranda" disclosure information, a reference to the Miranda rights statement law enforcement officers must give prior to arresting criminal suspects. The debt collector must tell the debtor: 1) the amount of the debt, 2) the name of the creditor, 3) the fact that unless the consumer disputes the validity of the debt within 30 days, the debt will be considered valid, and 4) that the consumer can ask for verification of the debt.

According to the law, this information can be given over the phone or must be sent to consumers in writing within five days of the first telephone contact.

Disputing debtsConsumers contacted by debt collection agencies can request written verification or proof of their debts -- but they must do so in writing with a verification letter that must be sent within 30 days of the initial contact from the collector. Collection calls and letters must stop until the debt is verified.

They must provide verification of the debt.

-- Rozanne Andersen
Debt collection industry spokeswoman

"The debt collector must do one of two things upon receipt," says Rozanne Andersen, executive vice president of ACA International, the 3,500-member credit and debt collection industry trade group. "They must provide verification of the debt with information to help the consumer understand the identity of the original creditor. The debt collector can either provide that verification and can resume collection or if the debt collector cannot provide that verification, the debt collector must cease collection on that account."

ACA has adopted a code of ethics governing how its members should conduct themselves. Andersen notes that asserting their rights under the fair debt collection law does not absolve consumers of the obligation to pay their debts if they truly owe the money. "I strongly suggest that they realize that they owe. They need to address those debts and they need to work with debt collectors to work out a reasonable payment plan."

Stop the callsIf collectors are calling incessantly, calling workplaces when they know it is not allowed by employers, jeopardizing a consumer's job or harassing debtors' friends or neighbors, a cease communication letter can be sent. Consumers can request that debt collectors communicate with them only in writing or cease communication altogether.

Afterward, the debt collector may only communicate with the consumer to inform him or her that collection has been terminated or to let the consumer know about a specific action, such as a lawsuit, the collector intends to make.

If consumers are represented in the debt collection case by an attorney, the law states collectors must communicate directly with the attorney rather than the debtor, unless the attorney fails to respond to the debt collector in a reasonable time period.

Harassment and abuse
Using or threatening to use violence or other criminal actions to harm consumers, their property or their reputation are illegal under the fair debt collections law. Also banned: obscene, profane or offensive language.

Calling the consumer repeatedly, hanging up, calling and not saying anything, anonymous phone calls or any other telephone behavior intended to annoy, harass or abuse the consumer, their family members, neighbors or co-workers is also prohibited by the law.

"If the calls are considered harassment by the consumer, they can ask that they desist," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, a nationwide group of nonprofit credit counseling agencies. "If a collection agency is calling repeatedly throughout the day, if there are threats, if they are abusive in their language or intimidating, those kinds of things can be shown to be harassment and that is prohibited by the Fair Debt Collections Act."

If the calls are considered harassment ... they can ask that they desist.

-- David Jones
Credit counseling industry spokesman

When harassing phone calls are a problem, consumers can request that all communication and harassment stop by sending a more strongly worded cease communication letter informing debt collectors they are in violation of the federal law.

Debt collectors are also banned from publishing lists of consumers who refuse to pay their debts (except to send information to a credit reporting bureau or other authorized people such as the original creditor or the creditor's attorneys).

Misrepresentation
Some consumers have reported debt collectors showing up at their homes, flashing something that looks like a badge and claiming to be plain clothed police officers. The fair debt collection law prohibits false, deceptive or misleading tactics when trying to collect debts. Impersonating an officer is a crime in many jurisdictions and consumer credit counselors advise consumers to contact their local police departments if this occurs.

Debt collectors also cannot claim to be attorneys or credit reporting agencies -- if they in fact are not -- and cannot claim that correspondence are legal court documents if they are not.

Threats to arrest debtors or anyone else, in addition to threats to file suit, garnish wages or sell or seize property are also illegal unless collectors actually intend to take these actions. Threats to take actions that cannot be legally taken are also banned under the law. An example is the case of debts that have gone beyond the statute of limitations -- the deadline for filing lawsuits. Debt collectors may not threaten to file suit in these cases because the statute of limitations has expired.

Post-dating checks
Consumer advocates recommend debtors avoid paying debt collectors with post-dated checks, even though collectors may pressure consumers to do so. Numerous problems can arise, including collectors depositing the checks prior to the date specified on the checks.

Getting help with debt collection

• To file a complaint about a debt collector or creditor's in-house collection agency, contact the Consumer Financial Protection Bureau. It has an online debt collection complaint form.

• It's also a good idea to file a complaint with your state consumer protection agency. State laws governing debt collection vary. Find your state attorney general through the National Association of Attorneys General.

• ACA International, the Association of Credit and Collection Professionals, has launched a complaint system to police its members.

• The National Consumer Law Center has resource materials to help consumers navigate the debt collection process.

"They'll keep them on file and then they try and push that client into a verbal OK to go into their checking account," says Leesa Kumley, an accredited consumer counselor at Pioneer Credit Counseling in Rapid City, S.D. She advises consumers to avoid sending debt collectors personal checks. "It gives them the bank routing number and account number. In the event of a judgment, they now have your routing number and account number to take the funds."

The fair debt collections law prohibits soliciting post-dated checks if they will be used to threaten consumers with criminal prosecution for bouncing checks. The law allows debt collectors to accept post-dated checks or other payment method (such as an electronic payment). However, if the date on the check is more than five days away, debt collectors who intend to cash checks prematurely must notify consumers in writing at least three business days before they deposit the checks.

Other unfair practices cited by the law include tacking interest, fees or charges or expenses on to the principal debt owed by the consumer. These extra fees are not permitted -- unless the original credit agreement allows these additions or it is permitted by law.

Collect telephone calls and fees for telegrams to consumers are also banned if they conceal the fact that the communication is for debt collection purposes.

ConfidentialityThe fact that consumers have debts is private information. The law protects that privacy by making it illegal for debt collectors to disclose the existence of debts to anyone other than authorized individuals (such as an attorney representing the debtor, spouses, parents or guardians of minors who may have accounts, executors and administrators) -- unless the debtor gives permission to disclose.

Any letters or telegrams sent to debtors must not identify senders as debt collectors or as being in the debt collection business. Thus, envelopes cannot contain the name of the collection agency if 'collection' or 'debt' is part of the name. Logos or symbols on the envelopes may also not involve debt collection.

Postcards, which can be read by others, may not be used in any correspondence.

Penalties
Consumers who feel they have been victims of unfair or deceptive debt collection practices can file civil suits against the collectors -- but they must do so within one year of the violations. If successful in court, an individual consumer may be awarded damages for actual losses incurred because of the violations, any court costs or attorneys' fees and up to $1,000 in additional damages. Consumers filing class action lawsuits can recover up to $500,000 or 1 percent of the net worth of the debt collector -- whichever is lower.

Consumer advocates have complained that the $1,000 damage cap for individuals -- set in 1977 when the law was originally enacted -- is too low by today's standards.

'In-house' collectionOne important exclusion from the fair debt collection law is so-called in-house collection departments. These are the collection divisions of banks, retailers or other credit issuers. Customers who miss one or two monthly payments may be called or receive letters from these in-house collection agents.

However, laws that protect consumers from abusive language, threats and other unfair practices when dealing with third-party debt collectors do not apply for in-house collectors. Why? Lawmakers who drafted the federal law felt credit card issuers had a vested interest in retaining good customer relations and were less likely to engage in harassing, threatening behavior. That reasoning hasn't proven true. According to the FTC, complaints about in-house debt collection practices nearly doubled between 2003 and 2006 -- from nearly 13,000 to more than 21,000.

"You can be a lot more aggressive when it's your own debt," says Howard Dvorkin, a nationally recognized consumer advocate and author of the book "Credit Hell: How to Dig Out of Debt."

Keeping recordsConsumer advocates recommend keeping copies of all written correspondence to and from debt collectors as well as sending any letters via certified U.S. mail. Some recommend getting a return receipt as well. Others advise keeping a log or journal of the day and time of calls, especially if there are multiple debts and multiple debt collectors calling.

Because of an increase in debt buying -- where old credit card and consumer loan debt may be resold multiple times -- consumers may be contacted about the same debt numerous times by different collection agencies.